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July 7, 2019 | How the Trans Mountain Expansion Will Make Vancouver More Affordable

Stewart Muir is founder and executive director of the Resource Works Society, a Vancouver-based group open to participation by British Columbians from all walks of life who are concerned about their future economic opportunities. He is an author, journalist and historian with experience on three continents including a financial editor of The Vancouver Sun responsible for mining and markets coverage. Since Resource Works was established in 2014, the group has gained international recognition for its practical approach to the public challenges of responsible natural resource development and use.

The fact that British Columbia residents pay more in road fuel tax than just about anywhere in North America is a deliberate policy to reduce consumption and GHG emissions.

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Although perception among some consumers may be that gasoline and diesel prices are too high, the majority of the costs that people pay at the pump for a litre of fuel in BC are taxes designed to reduce consumption and GHG emissions.

Claims of price rigging ring hollow: there is no credible evidence to support the gouging argument.

Assuming governments aren’t about to give up their revenues or lower environmental performance requirements, more pipeline capacity is likely to only practical way that this consumer pain can be eased.

The simple truth is that making fuel prices higher in BC, with the result that driving your internal-combustion vehicle costs more than just about anywhere in North America, has been the deliberate outcome of government policies brought in over the years.

Although critics of the Trans Mountain oil pipeline expansion project have insisted that doubling the existing Trans Mountain line’s capacity can have no possible effect on the amount of liquid fuels shipped to Vancouver or their end price, this questionable argument simply doesn’t stand up to common sense.

The planned expansion of the pipeline is expected to more than double the Trans Mountain Pipeline’s capacity, which will make it more economic for other parties to bring refined fuels into BC.

This information is revealed in a report from Parkland Refinery filed to the British Columbia Utilities Commission’s current probe into gasoline prices. (Download the report in its entirety here.)

States the study: “Presently, the Trans Mountain Pipeline is under allocation, which means that the desired shipping usage exceeds its capacity and therefore line space is allocated to shippers according to a formula based on historic usage. Thus, Parkland competes with other shippers for line space; those shippers may be shipping refined product for use in BC, or may be shipping crude to the Pacific Northwest for use in US refineries.”

The Burnaby Refinery, which accounts for 25 per cent of refined products used in the province, has to buy crude oil via aftermarket line space on the Trans Mountain pipeline, or get it by alternative means such as rail, “neither of which is efficient or as cost-effective as paying approved tolls on the Trans Mountain Pipeline.”

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Aftermarket pipeline purchases come at a significant premium: the average successful bid has ranged from $70 Canadian per cubic metre to in excess of $340. These bid values equate to approximately seven to 34 times the Trans Mountain Pipeline base tariff.

Every day that the new, expanded Trans Mountain line is not in service is a day in which this inescapable constraint remains in place. Build the pipeline and this condition is eased.

The new report also demonstrates that significant market and regulatory checks and balances exist to prevent “undue profit-taking in the retail gasoline industry,” contrary to an ongoing campaign by some elected officials to persuade the public that price gouging and not government policy is the reason for high prices.

What’s at play is incredibly simple: Fuel providers have to cover their higher costs and that is why retail prices are higher.

Notable examples of costly only-in-BC regulations:

  • Renewable fuel content standards, which in British Columbia require 5% renewable content for gasoline and 4% for diesel.
  • BC Low Carbon Fuel Regulation (LCFR), which is unique to BC and which requires refiners who produce fuel for the British Columbia market to progressively lower the carbon intensity of fuels produced at the facility every year. There are limited pathways to comply with this legislation, and compliance credits are not readily available in a liquid market to purchase, often exceeding $200 / MT (i.e., 1.5 cpl) when they are available at all. The LCFR standards have significant implications for production costs for refineries that wish to sell fuel in British Columbia, and a divergence in prices in British Columbia from the rest of Canada coincided with the introduction of the LCFR.
  • Gasoline taxes in most of BC are more than 10¢ per litre higher than in Alberta; in Victoria are nearly 16¢ higher than in Alberta; and in Vancouver are more than 21¢ higher than in Alberta.
  • Cleaner gas regulations for gasoline, which in BC are more stringent during certain times of the year in terms of vapour pressure and other specifications than the other provinces or the US Pacific Northwest, leading to higher manufacturing and blending costs for any refineries selling product for the British Columbia market during those times.
  • The Burnaby refinery is also subject to wastewater regulations, which require comprehensive water testing to meet Metro Vancouver discharge limits; air permit and emissions controls, including new conditions included in the Metro Vancouver air permit that may require significant capital investment by the refinery.

Market participants, including Parkland, also have their own policies in place to ensure that they and their partners behave ethically and in compliance with their legal obligations, according to the report.

Critics of high fuel costs have claimed, without providing any credible evidence, that retailers are flouting highly punitive federal competition rules resulting in gouging. However, it turns out that the opposite is true: for years now, it has been becoming less profitable to be in the gasoline business.

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High real estate prices, which nobody would dispute, are also part of the reason for the tight conditions in the Vancouver, says the Parkland report.

In summary, the picture that emerges once all the information is considered is very clear: British Columbia drivers pay through the nose for their fuels because governments want it that way. So do non-drivers, because that organic kombucha on the shelf at Whole Foods did not get there by levitation. Like every other consumer product, its creation and transportation could not be possible without fuels. The cost of fuel is inescapably reflected in the price.

As it stands, the only available lever to change the situation, short of easing the long list of onerous regulations, input costs and taxes, is to improve general market conditions by completing the Trans Mountain Pipeline Expansion.

We could do with an honest and fact-driven conversation about this topic.

 

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July 7th, 2019

Posted In: Resource Works

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